How Can You Close the College Saving Gap?

Dear Carrie, I'm the father of three teenage daughters. I've been saving for college since they were babies, so I'm shocked to find myself $100,000 short. How can I cover this gap? The oldest is 16. --A Reader

Dear Reader, First, I want to congratulate you for making saving for your daughters' educations a priority. It's no easy task to keep that as a primary goal in the face of all the other costs of raising children. A national Sallie Mae study, "How America Pays for College 2012," found that the typical family covered just 28 percent of their kids' college costs through savings and income in 2011-12. So give yourself a little credit.

But it's no wonder that parents are struggling. According to the College Board, average total charges for in-state students at four-year public colleges and universities in 2011-12 were close to $18,000 a year. Total costs for out-of-state students were over $30,000 per year. Yearly total costs at private nonprofit four-year institutions were close to $40,000. And these are just the averages!

Multiply these average annual costs by four years and then by three children and you have a tremendous challenge. Fortunately, with some research and planning -- and a little help from your daughters themselves -- there are ways to meet it head-on.

(SET BOLD) Research -- and apply for -- all financial aid (END BOLD)

A lot of parents make the mistake of thinking their kids won't qualify for financial aid -- and make the even bigger mistake of not applying for it. But whether it's through private scholarships or government grants and loans, there's a considerable amount of financial help out there -- and not all of it is asset based.

Again, according to the College Board, in 2011-12, full-time undergraduate students received an average of $13,218 per student in financial aid from a combination of federal loans and other sources. That's pretty encouraging.

Equally encouraging is the fact that the Department of Education has made the FAFSA (Free Application for Federal Student Aid) process more streamlined and easier to navigate. Consider, too, that in FAFSA calculations, only 5.64 percent of parents' assets are considered available for college expenses. There's also an asset protection allowance (which increases as the parents age), so a certain percentage of assets won't be counted. Retirement accounts and the value of your primary residence are also excluded.

I don't know how close your daughters are in age, but another factor that increases eligibility for aid is how many kids you have in college at the same time. Finaid.org is a good resource to research ways to maximize financial aid eligibility.

(SET BOLD) Help with student loans (END BOLD)

There's a lot written about the burden of student debt these days, and there's no denying that paying back student loans can be an albatross for many years if not managed wisely. But today, student loans are a fact of life and a viable way to pay for an education. The average student loan debt for 2011 graduates was $26,500. However, you don't necessarily have to saddle your daughters with the entire bill. To cover the shortfall in savings, you could finance a certain percentage of college costs through student loans (ideally federal) and help your daughters pay them back over time.

(SET BOLD) Put your kids to work (END BOLD)

If you haven't done it so far, now's the time to get your daughters involved in saving. Encourage them to get a summer job or even part-time work during the school year and put a percentage of their earnings toward college. It's not unusual for kids to contribute toward their education. According to the same Sallie Mae study, students pay about 12 percent of college costs from their own savings and income, and the National Center for Education Statistics reports that about 40 percent of full-time undergraduates work while in college.

You could also encourage your daughters to put a portion of any monetary gifts toward a college account. Speaking of gifts, when grandparents or other relatives want to buy something for the girls, suggest a contribution toward their education. It all adds up!

(SET BOLD) Be tax-smart (END BOLD)

If you don't have your savings in a 529 College Savings Account, consider opening one for each of your daughters now. A single person can contribute up to $70,000 per child (or $140,000 for a married couple) without gift tax implications, and earnings grow tax-free. Withdrawals are also tax free if used for qualified education expenses.

Once your oldest daughter is in college, talk to your tax advisor about available college tax credits and deductions.

(SET BOLD) Protect your own retirement (END BOLD)

One last -- and very important -- thought. Even though you're saving for your kids, don't short-change your retirement. There are many ways to pay for college, but retirement savings is pretty much up to you. By all means help your daughters, but make sure that when they're graduated and on their own, they can feel confident that you've not only take care of them, you've taken care of yourself, as well.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.